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10-33 High-low method; regression analysis. (CIMA, adapted) Anna Martinez, the financial manager at the Casa Real restaurant, is checking to see if there is any relationship between newspaper advertising and sales revenues at the restaurant. She obtains the following data for the past 10 months:Month Revenues Advertising CostsMarch $50,000 $2,000April 70,000 3,000May 55,000 1,500June 65,000 3,500July 55,000 1,000August 65,000 2,000September 45,000 1,500October 80,000 4,000November 55,000 2,500December 60,000 2,500She estimates the following regression equation:Monthly revenues = $39,502 + ($8.723 * Advertising costs)1. Plot the relationship between advertising costs and revenues. Required2. Draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, andslope of the regression line.3. Use the high-low method to compute the function, relating advertising costs and revenues.4. Using (a) the regression equation and (b) the high-low equation, what is the increase in revenues foreach $1,000 spent on advertising within the relevant range? Which method should Martinez use to predictthe effect of advertising costs on revenues? Explain briefly.
